What  is  Necessary  to  Ascertain  and  Fix  a Just 
Compensation  to  the  Railroads  for 
Carrying  the  Mails? 


STATEMENT 

SUBMITTED  TO  THE 

JOINT  COMMISSION 


INVESTIGATE  THE  POSTAL  SERVICE. 


STUYVKSANT  FISH, 

PRESIDENT  OF  THE 

ILLINOIS  CENTRAL  RAILROAD  COMPANY, 


january  6,  i8gg. 


^ 5 


ILLINOIS  CENTRAL  RAILROAD  COMPANY. 


New  York,  January  6,  1899. 

To  the  Honorable 

The  Commission 

To  Investigate  the  Postal  Service, 
Washington,  D.  C. 


Gentlemen: 

It  is  to  be  assumed  that  your  purpose  is  to  ascertain, 
and  that  of  Congress  to  fix,  a just  compensation  to  the 
railroads  for  carrying  the  mails. 

To  the  determination  of  such  compensation,  more  is 
needed  than  the  mere  consideration  of  the  relation  of  the 
rates  of  mail  pay  in  force  to  the  compensation  received  by 
the  railroads  for  other  services. 

For  if  the  railroads  are,  as  some  contend,  now  receiving 
such  revenues  as  to  enable  them  to  make  excessive  profits, 
it  is  obviously  wrong  that  they  should  be  paid  with  equal 
extravagance  for  the  mails;  while,  on  the  other  hand,  if 
the  railroads  are  not  now  sufficiently  paid  for  their  services, 
it  is  equally  wrong  that  this  should  be  availed  of  to  reduce 
their  mail  pay. 

The  action  of  the  Officers  and  Directors  of  the  larger 
number  of  Railroad  Companies  in  miscalling  the  sums 
collected  by  them  for  the  transportation  of  passengers  and 
property  “ Earnings  ”,  has  led  to  the  grossest  misappre 
hension  as  to  what  the  railroads  really  do  Earn. 

Some  Companies  have  gone  so  far  as  to  state  what  they 
are  pleased  to  call  “Net  Earnings”,  and  to  make  dividends 
therefrom,  without  first  deducting  Taxes  and,  in  whole 
or  in  part,  such  other  necessary  and  unavoidable  expenses 
of  conducting  the  business  as  Interest,  Insurance,  Ex 
change  and  Rent. 


? 


20H I 


J 


Unfortunately  the  Interstate  Commerce  Commission, — 
which  was  created,  in  part  at  least,  for  the  purpose  of 
correcting  and  preventing  such  errors  and  the  consequent 
frauds  upon  the  public  and  the  creditors  of  the  railroads, 
and  which  has  done  so  much  to  improve  the  methods  of 
railroad  accounting, — adopted  and  persisted  in  both  of 
these  errors  until  last  year,  and  still  persists  in  the  latter. 

The  Act  of  1887  to  Regulate  Commerce,  as  since  amended, 
requires: 

That  the  Commission  shall,  on  or  before  the  first 
day  of  December  in  each  year,  make  a report,  which 
shall  be  transmitted  to  Congress,  and  copies  of  which 
shall  be  distributed  as  are  the  other  reports  trans- 
mitted to  Congress.  This  report  shall  contain  such 
information  and  data  collected  by  the  Commission 
as  may  be  considered  of  value  in  the  determination 
of  questions  connected  with  the  regulation  of  com- 
merce. 

The  only  information  and  data  given  at  a time  and  in  a 
manner  which  in  any  measure  fulfils  this  requirement, 
are  contained  in  the  Preliminary  Reports  on  the  Income 
Account  of  Railways  in  the  United  States  for  the  year 
ending  on  the  30th  of  June  preceding,  which  are  annually 
made  to  the  Commission  by  their  Statistician.  While 
the  Preliminary  Report  for  June  30,  1898,  has  not  been 
made  and  transmitted  to  Congress,  such  a report  can  con- 
fidently be  expected  to  appear  before  long. 

It  should  be  added  that  later  on  a fuller  report,  entitled 
“ Statistics  of  Railways,”  is  also  made  by  the  Statistician 
to  the  Commission.  But  as  this  is  never  published  in  full 
until  eighteen  months,  or  more,  after  the  close  of  the 
period  to  which  it  relates,  and  then  only  as  an  Appendix 
to  a long  forgotten  Report  of  the  Commission  to  Congress, 
it  is  difficult  to  see  how  it  can  be  “of  value  in  the  de- 
termination of  questions  connected  with  the  regulation 
of  commerce.” 

(The  obvious  and  great  improvements  made  by  the 
Commission  in  their  last  Preliminary  Report,  and  the 
high  regard  which  I entertain  and  have  so  often  expressed 
for  the  Members  of  that  body,  disarm  me  alike  of  power 
or  desire  to  criticize  their  recent  work,  further  than  is  abso- 


5 


lutely  necessary  in  order  to  bring  the  facts  to  your  atten- 
tion. It  is  but  fair  to  add  that  the  Commission  claim,  with 
some  force,  that  they  are  delayed  by  fhe  failure  of  certain 
railroad  companies  to  report  promptly,  On  the  other 
hand,  a simpler  and  clearer  Statistical  Report  could  un- 
doubtedly be  got  out  in  time  to  be  of  value,  if  all  useless 
elaboration  of  detail  were  omitted  therefrom.) 

The  Preliminary  Reports  alone  reach  the  attention  of 
Congress  and  of  the  People  in  time  to  have  either  value  or 
interest. 

The  first  ten  Annual  Reports  of  the  Interstate  Com- 
merce Commission,  down  to  and  including  the  one  made 
under  date  of  December  1,  1896,  and  each  of  the  Prelimi- 
nary Reports  which  accompanied  them,  can  be  read 
throughout,  without  discovering  that  any  railroad  in  the 
United  States  had  ever  paid  any  taxes. 

It  took  me  a long  while  to  discover  that  in  the  belated 
“ Statistics  of  Railways,”  Taxes  had  been  persistently 
hidden  away  under  the  heading  of  “ Fixed  Charges,”  and 
so  used  to  swell  that  which,  as  ail  the  world  knows,  forms 
a part  of  the  hire  of  borrowed  capital,  i.  e .,  Interest  and 
Rent. 

It  is  due  to  the  Interstate  Commerce  Commission  to  say 
that  in  their  last,  the  Eleventh  Annual  Report,  and  in  the 
Preliminary  Report  which  accompanied  it,  as  well  as  in 
the  brief  Abstract  of  Statistics  of  Railways  for  the  year 
ending  June  30,  1897  (published  August  18,  1898),  the  fact 
that  the  railroads  paid  taxes  was  clearly  brought  out,  and 
the  amount  paid,  $43,137,814,  was  plainly  stated. 

But  the  Commission  persist  in  stating  Net  Earnings, 
without  even  deducting  Taxes,  leave  alone  Interest  and 
Rent. 

The  last  Preliminary  Report  also  made  a clear  and  very 
necessary  distinction  between  the  income  of  the  Operating 
Railroads,  which  are  those  “ common  Carriers  engaged  in 
the  transportation  of  passengers  or  property  ” (see  Act  of 
1887  to  Regulate  Commerce,  Sec.  1),  and  the  income  of 
Operated  Railroads,  which  are  those  which  have  ceased 
to  deal  with  the  public  as  common  carriers  in  consequence 
of  having  leased  their  franchises  and  facilities  to  one  or 
other  of  the  Operating  Railroads. 


6 


Taken  as  a whole,  the  Operating  Companies  have  two 
sources  of  revenue: 

First. — The  money  which  they  receive,  as  common 
carriers,  for  the  transportation  of  passengers  and  freight, 
including  therein  the  mails. 

This  is  common  to  all  of  the  Operating  Companies. 

Second. — The  money  which  certain  of  them  receive 
from  other  sources. 

The  Receipts  of  all  the  Operating  Companies  from 
transportation,  however,  comprise  the  sum  total  of  all 
that  is  paid  in  the  United  States  for  transportation  by 
rail. 

Their  Receipts  from  other  sources  consist  mainly,  if  not 
entirely,  of  the  Rent  of  Railroad  Property  and  of  Interest 
and  Dividends  on  Investments  in  Railroads.  All  of  this 
must,  however,  come  from  the  money  which  the  Operat- 
ing Railroads,  as  a whole,  have  taken  for  transportation. 

That  is  to  say,  in  considering,  as  we  must,  the  railroads 
as  a whole,  the  second  source  of  revenue  above  set  forth 
is  in  no  sense  an  addition  to  the  first,  but  merely  the  dis- 
tribution of  a part  of  it  to  such  of  the  Operating  Com- 
panies as  are  by  contract  entitled  thereto.  No  one  will 
question  that  if  those  Companies  should  sell,  or  divide 
among  their  shareholders,  all  the  property  and  securities 
from  which  such  rents  and  interest  come,  their  income 
would  thereafter  be  confined  to  the  first  source  of  revenue 
alone. 

While  no  one  can  object  to  the  revenue  from  the  second 
source  being  stated  in  detail,  with  respect  to  each  Com- 
pany, in  the  reports  of  the  Interstate  Commerce  Commis- 
sion, as  a matter  of  general  information,  it  should  not, 
and,  it  is  fair  to  assume,  it  is  not,  included  in  those  re- 
ports as  having  any  value  in  the  determination  of  ques- 
tions connected  with  the  regulation  of  commerce,  much 
less  in  ascertaining  the  just  compensation  of  the  carriers. 

Least  of  all  should  this  second  source  of  revenue  be 
added  to  the  first,  as  has  been  attempted  by  some  in  order 
to  make  the  pay  received  by  the  railroads,  for  services 
rendered,  appear  larger  than  it  is. 


7 


From  the  fact  that  certain  corporations  have  for  years 
been  thrifty,  forehanded  and  self-denying  in  the  division 
of  profits,  while  others  have  been  wasteful  and  improvi- 
dent, it  results  that  the  latter  are  debtors  to  the  former, 
but  this  does  not  in  any  way  swell  the  charge  made  by 
the  railroads,  as  a whole,  for  the  services  rendered  by 
them. 

In  what  follows,  the  term  “ Gross  Receipts  from  Trans- 
portation,” or  for  brevity,  “ Gross  Receipts,”  is  substituted 
for  that  which  the  Interstate  Commerce  Commission,  in 
their  Reports  heretofore  published,  have  called  “ Gross 
Earnings,”  because  the  Earnings  of  a Railroad  Company 
are  precisely  what  the  Earnings  of  any  other  corporation 
for  gain  are,  to  wit,  that  which  is  left  of  the  Gross  Re- 
ceipts or  Gross  Sales  after  paying  the  expenses  of  con- 
ducting the  business,  including  therein  Taxes,  Rent  and 
Interest. 

With  a view  to  showing  just  what  the  Railroads  of  the 
United  States,  taken  as  a whole,  have  earned  from  trans- 
portation since  the  Interstate  Commerce  Commission  be- 
gan to  make  full  Statistical  Reports,  and  of  exhibiting,  as 
tendencies  of  the  business,  the  enormous  increase,  both  in 
the  amount  of  Taxes  and  the  relation  of  Taxes  to  the 
Earnings,  permit  me  to  invite  your  careful  attention  to 
the  four  tables  following: 


Four  Tables  Compiled  from  Interstate  Commerce  Commission  Reports  on  Statistics  of  Railways 

in  the  United  States. 

No.  1. 


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During  these  eight  years  the  railroads  of  the  United 
States  paid  out  in  the  conduct  of  their  business  $121,- 
255,079  more  than  they  took  in.  In  no  single  year 
have  they  ever  earned  one  per  cent,  of  that  which  they 
received.  In  each  year  their  Taxes  have  been  at  least 
three  times  as  great  as  their  Earnings,  and  in  no  one  of 
the  last  five  years  have  the  railroads,  taken  as  a whole, 
earned  anything  whatever. 

While  the  Interstate  Commerce  Commission  may  not 
have  said  so  in  so  many  words,  no  one  can  read  the  Re- 
ports made  to  them  by  their  Statistician  without  becom- 
ing convinced  that  the  railroads  of  the  United  States, 
taken  as  a whole,  have  not,  in  recent  years,  earned  any- 
thing whatever,  but  have  been  losing  money  constantly 
and  very  rapidly. 

As  bearing  on  this,  your  attention  is  invited  to  “ Statis- 
tics of  Railways  ” for  1894,  page  10,  where,  after  report- 
ing that  the  Companies  owning  40,818  miles  of  railroad 
were  then  in  default,  it  is  said  that  “ The  total  capitaliza- 
tion of  railroads  in  the  hands  of  Receivers  was  about 
$2,500,000,000 — that  is  to  say,  one- fourth  of  the  total  rail- 
way capitalization  of  the  country.” 

“Statistics  of  Railways,”  1895,  page  10,  likewise  shows 
that  the  37,855  miles  of  railroad  then  in  the  hands  of  Re- 
ceivers represented  an  investment  of  $2,439,144,503. 

See  also  “Statistics  of  Railways,”  1894,  where,  after 
giving  a comparison  of  conditions  with  those  prevailing  in 
1893,  which  revealed  that  the  number  of  men  employed 
had,  within  that  year,  been  lessened  by  93,944,  the  Statis- 
tician says,  at  page  73: 

Comment  upon  the  facts  in  the  above  summary 
would  be  superfluous.  Railway  construction  was 
arrested,  development  of  railway  equipment  was 
nearly  stationary,  railway  employees  were  reduced, 
and  that  after  a series  of  years  which  showed  an 
average  annual  increase  in  the  pay  roll  of  42,215 
employees. 


13 


In  order  that  there  shall  be  no  ground  for  saying  that 
the  deductions  necessarily  to  be  made  from  the  four 
tables  above  set  forth  on  pages  8 to  11,  depend  either 
upon  the  question  of  calling  the  money  taken  by  the 
railroads  “Earnings”  or  ‘‘Receipts,”  or  upon  that  of 
counting  over  a second  time  the  income  which  certain 
railroads  derive  from  investments  in  others,  and  in  order 
to  establish  beyond  cavil  that  the  official  figures  printed 
by  the  Interstate  Commerce  Commission  demonstrate 
that  during  the  whole  period  for  which  they  have  pub- 
lished Statistics,  from  1890  to  1897,  the  railroads,  taken 
as  a whole,  have  not  earned  anything  whatever— let  me 
ask  you  to  take  the  General  Balance  Sheet  set  forth  on 
page  74  of  “Statistics  of  Railways,”  1890,  and  compare  it 
with  the  Balance  Sheet  given  on  page  83  of  “ Statistics 
of  Railways,”  1896,  as  is  done  below. 


Comparison  of  the  Earliest  with  the  Latest  General  Balance  Sheet  of  all  the 

Showing  increase  and  decrease  between  June  30,  1890,  and  June  30,  1897. 


14 


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From  this  comparison  we  find,  as  the  result  of  seven 
years’  business,  that  the  Railroads  of  the  United  States, 
after  parting  with  nearly  25  per  cent,  of  their  “ Bonds 
Owned”  and  reducing  that  asset  by  $120,229,656,  and 
after  reducing  their  “Miscellaneous  Assets”  by  15  per 
cent.,  or  $108,267,649,  have  increased  their  “Current  Lia- 
bilities,” i.  e.,  Floating  Debt,  by  39  per  cent.,  or  $172,583,- 
474,  and  have  also  diminished  the  Balance  at  the  credit  of 
Profit  and  Loss  by  39  per  cent.,  or  $74,888,893. 

Here  are  losses  worked  out  by  the  Statistician  of  the 
Interstate  Commerce  Commission,  from  the  sworn  Re- 
ports of  the  Railroad  Companies,  which  are  simply  appal- 
ling. 

The  whole  period,  from  1890  to  1896,  for  which  the 
Commission  have  as  yet  made  full  reports,  has  been 
taken. 

Had  the  comparison  been  confined  to  the  pre-eminently 
bad  years,  1893  to  1896,  the  contrast  would  have  been  even 
more  startling. 

If,  therefore,  so  vast  an  industry  as  that  represented  by 
the  railroads  of  the  United  States,  upon  which  some  900,- 
000  men  depend  directly  for  employment,  has  been  for 
years  conducted  at  an  absolute  loss,  can  it  be  right  for 
Congress,  in  fixing  a just  compensation  for  carrying  the 
mails,  to  consider  only  the  relation  of  the  ruinously  low 
charges  which  competition  and  adverse  legislation  have 
forced  on  the  railroads? 

Respectfully  submitted, 

Stuyvesant  Fish, 

President . 


1 291  W | 


